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Form 8-K MACATAWA BANK CORP For: Oct 22

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October 22, 2020 4:31 PM EDT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
 Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  October 22, 2020

MACATAWA BANK CORPORATION
(Exact name of registrant as specified in its charter)
Michigan
000-25927
38-3391345
(State or other jurisdiction of Incorporation)
(Commission File Number)
(I.R.S. Employer  Identification No.)

10753 Macatawa Drive, Holland, Michigan
49424
(Address of principal executive offices)
(Zip Code)

(616) 820-1444
(Registrant's Telephone Number, Including Area Code)

Not Applicable
(Former name or former address, if changed since last year)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425).

☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12).

☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)).

☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)).

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common stock
MCBC
NASDAQ

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02
Results of Operations and Financial Condition.

October 22, 2020, Macatawa Bank Corporation issued the press release furnished with this report as Exhibit 99.1, which is here incorporated by reference. This report and the exhibit are furnished to, and not filed with, the Commission.

Item 9.01
Financial Statements and Exhibits.


(d)
Exhibits





Press Release dated October 22, 2020. This exhibit is furnished to, and not filed with, the Commission.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated:  October 22, 2020
MACATAWA BANK CORPORATION



By
/s/ Jon W. Swets


Jon W. Swets
Chief Financial Officer


Exhibit 99.1
 
For Immediate Release
NASDAQ Stock Market:
MCBC

Macatawa Bank Corporation Reports
Third Quarter 2020 Results

HOLLAND, Mich. (October 22, 2020) – Macatawa Bank Corporation (NASDAQ: MCBC), the holding company for Macatawa Bank (collectively, the “Company”), today announced its results for the third quarter of 2020.

•
Net income of $7.1 million in third quarter 2020 versus $8.2 million in third quarter 2019 – down 13%
•
Provision for loan losses of $500,000 in third quarter 2020 versus no provision in the third quarter 2019, due to additional qualitative allocations for effects of COVID-19 pandemic
•
Net loan recoveries of $203,000 in third quarter 2020 versus $4.0 million net chargeoffs in second quarter 2020 and $259,000 net recoveries in third quarter 2019
•
Net interest margin decreased to 2.43% in third quarter 2020 versus 3.29% in third quarter 2019 primarily due to federal funds rate decreases during the past year, low-yielding Paycheck Protection Program (“PPP”) loans and high on-balance sheet liquidity
•
Growth in non-interest income of $879,000 (17%) from third quarter 2019 driven by increased residential mortgage volume
•
Modest increase in total non-interest expense – up $524,000 (5%) from third quarter 2019
•
Loan portfolio balances up by $165.1 million (12%) from third quarter 2019, driven by PPP loans
•
Approximately 75% of loans modified under CARES Act have returned to contractual terms at September 30, 2020
•
Core deposit balances up by $350.4 million (19%) from third quarter 2019
•
Capital and liquidity levels remain strong

The Company reported net income of $7.1 million, or $0.21 per diluted share, in the third quarter 2020 compared to $8.2 million, or $0.24 per diluted share, in the third quarter 2019.  For the first nine months of 2020, the Company reported net income of $21.2 million, or $0.62 per diluted share, compared to $23.8 million, or $0.70 per diluted share, for the same period in 2019.

"We are pleased to report solid profitability for the third quarter of 2020, despite the challenges of operating during a continuing world-wide pandemic,” said Ronald L. Haan, President and CEO of the Company.  “The COVID-19 pandemic has continued to have a significant impact on our community, but the Company has again proven resilient and consistent in serving the financial needs of our customers and our community.  We were active participants in the Small Business Administration’s Paycheck Protection Program (PPP) and originated 1,738 PPP loans totaling $346.7 million in the second and third quarters of 2020.  The loans were distributed to many local small businesses in order to protect jobs and allow continued paychecks to employees in those companies.  Despite the challenging environment in the third quarter of 2020, we produced $7.1 million in earnings for the quarter.  Mortgage gains in the third quarter of 2020 were nearly double the level achieved a year ago and offset much of the reduction in net interest income caused by the significant decrease in market interest rates in 2020. An increase in provision for loan losses was another reason for the reduction in net income in the third quarter of 2020 compared to the third quarter of 2019, as we increased our allowance for loan losses due to factors associated with COVID-19, including additional allocations provided to loans that remained under CARES Act modifications at September 30, 2020.  We returned to achieving net loan recoveries in the third quarter of 2020 after experiencing a sizeable charge-off in the second quarter of 2020.”

Macatawa Bank Corporation 3Q Results / page 2 of 7

Mr. Haan concluded:  "We will continue to experience challenges relating to the impact of COVID-19 on our customers and our business.  We have actively worked with our borrowers to provide payment relief where possible while protecting the Company’s position.  We provided short-term modifications on $337.2 million of loans through the third quarter of 2020.  Approximately 75 percent of the loans that had been modified during the COVID-19 pandemic have either paid off or have returned to their normal loan payment terms with only $80 million of these loans remaining in modified status at September 30, 2020.  Our capital levels significantly exceed regulatory requirements, and we believe our strong balance sheet should provide the strength and stability to weather these difficult times.”

Operating Results
Net interest income for the third quarter 2020 totaled $14.7 million, a decrease of $373,000 from the second quarter 2020 and a decrease of $1.2 million from the third quarter 2019.  Net interest margin for the third quarter 2020 was 2.43 percent, down 31 basis points from the second quarter 2020, and down 86 basis points from the third quarter 2019.  Net interest income for the third quarter 2020 benefitted from amortization of $1.2 million in fees from loans issued under the PPP in the second and third quarters of 2020.  These fees are amortized over the loans’ contractual maturity, which is 24 months or 60 months, as applicable.  Upon SBA  forgiveness, the remaining unamortized fees will be recognized into interest income.  At September 30, 2020, the Company had approved and submitted 264 forgiveness applications with balances totaling $90.5 million to the SBA.  The Company received its first forgiveness disbursement on October 7, 2020 and through October 20, 2020 the Company had received forgiveness disbursements totaling $3.1 million.  The Company expects the related fee income amortization to accelerate in the fourth quarter of 2020 as the SBA processes the forgiveness applications, positively impacting net interest income.  Net interest margin was negatively impacted in the third quarter 2020 versus the second quarter 2020 by carrying significantly higher balances of federal funds sold due to the seasonal increase in deposits from municipal customers typically experienced.  These balances, which earn only 10 basis points in interest, increased by $226.3 million, on average, from the second quarter 2020 and caused a 25 basis point decrease in net interest margin in the third quarter 2020.  This constitutes most of the 31 basis point decrease from the second quarter 2020 to the third quarter 2020.  The most significant factor in the 86 basis point decrease in margin from the third quarter 2019 to the third quarter 2020 was the impact of the 225 basis point decrease in the federal funds rate.  Floor rates established by the Company on its variable rate loans over recent years served to soften the negative impact on net interest income of these federal funds rate decreases.  Without these floors, net interest income would have been lower than stated by approximately $1 million.

Average interest earning assets for the third quarter 2020 increased $199.9 million from the second quarter 2020 and were up $494.7 million from the third quarter 2019.  Increases in deposit balances, including seasonal municipal deposits, accounted for the increase from second quarter 2020.

Macatawa Bank Corporation 3Q Results / page 3 of 7

Non-interest income increased $238,000 in the third quarter 2020 compared to the second quarter 2020 and increased $879,000 from the third quarter 2019.  Gains on sales of mortgage loans in the third quarter 2020 were down $303,000 compared to the second quarter 2020 and were up $722,000 from the third quarter 2019.  The Company originated $40.8 million in mortgage loans for sale in the third quarter 2020 compared to $50.1 million in the second quarter 2020 and $24.6 million in the third quarter 2019.  Also positively affecting non-interest income in the third quarter 2020 was $253,000 in fees related to customer back-to-back interest rate swaps executed in the quarter.  These fees were $138,000 in the second quarter 2020 and $0 in the third quarter 2019.  Deposit service charges were up $127,000 in the third quarter 2020 compared to the second quarter 2020 and were down $152,000 compared to the third quarter 2019.  These fees are lower than in recent years due to lower overdraft fees as customers have generally retained higher deposit balances due to uncertainty related to the COVID-19 pandemic.

Non-interest expense was $11.5 million for the third quarter 2020, compared to $10.5 million for the second quarter 2020 and $11.0 million for the third quarter 2019.  The largest component of non-interest expense was salaries and benefit expenses.  Salaries and benefit expenses were up $714,000 compared to the second quarter 2020 and were up $208,000 compared to the third quarter 2019.  The increases compared to the second quarter 2020 and third quarter 2019 were due to a combination of actions taken to mitigate the negative effects of the COVID-19 shutdown of the economy, and the reversal of certain actions given the positive results of the second and third quarters of 2020.  Early in the third quarter 2020, the Company eliminated its personnel pay freezes, reinstated 401k matching contributions, and reinstated bonus accruals.  Favorably impacting salary and benefit expenses were lower claims experience in the Company’s medical insurance plan.  Second quarter 2020 expense benefitted from larger salary cost deferrals from origination of PPP loans.  The table below identifies the primary components of the changes in salaries and benefits between periods.

Dollars in 000s
  
Q3 2020
to
Q2 2020
    
Q3 2020
To
Q3 2019
  
             
Salaries and other compensation
  
$
116
    
$
158
  
Salary deferral from commercial loans
    
300
      
(10
)
Bonus accrual
    
242
      
12
  
Mortgage production – variable comp
    
(17
)
    
88
  
401k matching contributions
    
136
      
11
  
Medical insurance costs
    
(63
)
    
(51
)
Total change in salaries and benefits
  
$
714
    
$
208
  

Nonperforming asset expenses remained low in the third quarter 2020 at just $25,000 compared to $17,000 in the second quarter 2020 and $46,000 in the third quarter 2019.  FDIC assessment expense was $131,000 in the third quarter 2020 and $76,000 in the second quarter 2020.  There was no FDIC assessment expense in the third quarter 2019 as the FDIC assessment credits fully covered the assessment in that quarter.  All of the Company’s FDIC assessment credits had been applied by the second quarter 2020, so expense increased in the second quarter 2020 and third quarter 2020.  Other categories of non-interest expense were relatively flat compared to the second quarter 2020 and the third quarter 2019 due to a continued focus on expense management.

Macatawa Bank Corporation 3Q Results / page 4 of 7

Federal income tax expense was $1.6 million for the third quarter 2020 compared to $1.8 million for the second quarter 2020 and $1.9 million for the third quarter 2019.  The effective tax rate was 18.5 percent for the third quarter 2020, compared to 18.7 percent for the second quarter 2020 and 18.7 percent for the third quarter 2019. 

Asset Quality
A provision for loan losses of $500,000 was recorded in the third quarter 2020 compared to no provision taken in the third quarter 2019.  Net loan recoveries for the third quarter 2020 were $203,000, compared to second quarter 2020 net loan chargeoffs of $4.0 million and third quarter 2019 net loan recoveries of $259,000.  The large provision in the second quarter 2020 was primarily due to a $4.1 million charge-off on a single loan relationship in the movie theater business.  The Company has no other borrowers in that particular industry, and believes the loss was an isolated incident.  At September 30, 2020, the Company had experienced net loan recoveries in twenty-one of the past twenty-three quarters.  Total loans past due on payments by 30 days or more amounted to $524,000 at September 30, 2020, down from $3.3 million at June 30, 2020 and up from $207,000 at September 30, 2019.  Delinquency as a percentage of total loans was 0.03 percent at September 30, 2020, well below the Company’s peer level.

The allowance for loan losses of $16.6 million was 1.07 percent of total loans at September 30, 2020, compared to 1.01 percent of total loans at June 30, 2020, and 1.24 percent at September 30, 2019.  The ratio at September 30, 2020 and at June 30, 2020 includes the PPP loans originated in the second and third quarters, which are fully guaranteed by the SBA and receive no allowance allocation.  The ratio at September 30, 2020 and June 30, 2020 excluding PPP loans was 1.38% and 1.29%, respectively.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 85-to-1 as of September 30, 2020.

The CARES Act enacted in the first quarter of 2020 allowed the Company to provide payment relief to borrowers that were current on their loan terms at December 31, 2019 without being required to identify those loans as troubled debt restructurings, essentially allowing the presumption of the borrowers not being in financial difficulty.  The Company granted 726 of these modifications with principal balances totaling $337.2 million in the first through third quarters of 2020, the large majority of which were granting interest only period of 90 days.  Some borrowers were granted an additional 90 day modification.  By September 30, 2020, approximately 75 percent of the modifications granted had expired and the loans were back to their contractual terms.  The table below shows the number of loans and balances that were under such modifications as of the end of the quarter for the dates indicated.

 
Dollars in 000s
  
Number of
COVID-19
Modifications
    
Balance of
COVID-19
Modifications
  
March 31, 2020
    
176
    
$
87,917
  
June 30, 2020
    
599
      
297,269
  
September 30, 2020
    
26
      
79,894
  

At September 30, 2020, the Company's nonperforming loans were $195,000, representing 0.01 percent of total loans.  This compares to $3.0 million (0.19 percent of total loans) at June 30, 2020 and $211,000 (0.02 percent of total loans) at September 30, 2019.  Other real estate owned and repossessed assets were $2.6 million at September 30, 2020, compared to $2.6 million at June 30, 2020 and $3.1 million at September 30, 2019. Total non-performing assets, including other real estate owned and nonperforming loans, were $2.8 million, or 0.11 percent of total assets, at September 30, 2020.  Total nonperforming assets, including other real estate owned and nonperforming loans, decreased by $501,000 from September 30, 2019 to September 30, 2020.

Macatawa Bank Corporation 3Q Results / page 5 of 7

A break-down of non-performing loans is shown in the table below.

 
Dollars in 000s
  
Sept 30,
2020
    
Jun 30,
2020
    
Mar 31,
2020
    
Dec 31,
2019
    
Sept 30,
2019
  
                               
Commercial Real Estate
  
$
97
    
$
2,857
    
$
5,908
    
$
98
    
$
102
  
Commercial and Industrial
    
---
      
---
      
1,211
      
---
      
---
  
Total Commercial Loans
    
97
      
2,857
      
7,119
      
98
      
102
  
Residential Mortgage Loans
    
98
      
100
      
103
      
105
      
109
  
Consumer Loans
    
---
      
---
      
8
      
---
      
---
  
Total Non-Performing Loans
  
$
195
    
$
2,957
    
$
7,230
    
$
203
    
$
211
  

A break-down of non-performing assets is shown in the table below.

 
Dollars in 000s
  
Sept 30,
2020
    
Jun 30,
2020
    
Mar 31,
2020
    
Dec 31,
2019
    
Sept 30,
2019
  
                               
Non-Performing Loans
  
$
195
    
$
2,957
    
$
7,230
    
$
203
    
$
211
  
Other Repossessed Assets
    
---
      
---
      
---
      
---
      
---
  
Other Real Estate Owned
    
2,624
      
2,624
      
2,626
      
2,748
      
3,109
  
Total Non-Performing Assets
  
$
2,819
    
$
5,581
    
$
9,856
    
$
2,951
    
$
3,320
  

Balance Sheet, Liquidity and Capital

Total assets were $2.51 billion at September 30, 2020, an increase of $57.6 million from $2.45 billion at June 30, 2020 and an increase of $364.2 million from $2.14 billion at September 30, 2019.  Assets were elevated at September 30, 2020 and June 30, 2020 due to customers holding a higher level of deposits during the COVID-19 pandemic, including unused balances from PPP loan proceeds, particularly in the second quarter 2020.  Total loans were $1.54 billion at September 30, 2020, a decrease of $20.4 million from $1.56 billion at June 30, 2020 and an increase of $165.1 million from $1.38 billion at September 30, 2019.

Commercial loans increased by $239.3 million from September 30, 2019 to September 30, 2020, partially offset by a decrease of $60.2 million in the residential mortgage portfolio, and a decrease of $14.0 million in the consumer loan portfolio.  Commercial real estate loans decreased by $21.5 million while commercial and industrial loans increased by $260.8 million during the same period.  The growth in commercial and industrial loans was due to PPP loan originations primarily during the second quarter 2020.

The composition of the commercial loan portfolio is shown in the table below:

 
Dollars in 000s
  
Sept 30,
2020
    
Jun 30,
2020
    
Mar 31,
2020
    
Dec 30,
2019
    
Sept 30,
2019
  
                               
Construction and Development
  
$
121,578
    
$
127,094
    
$
135,648
    
$
134,710
    
$
117,782
  
Other Commercial Real Estate
    
437,345
      
442,862
      
457,003
      
463,748
      
462,686
  
Commercial Loans Secured by Real Estate
    
558,923
      
569,956
      
592,651
      
598,458
      
580,468
  
Commercial and Industrial (1)
    
752,918
      
740,761
      
527,590
      
499,572
      
492,085
  
Total Commercial Loans
  
$
1,311,841
    
$
1,310,717
    
$
1,120,241
    
$
1,098,030
    
$
1,072,553
  


(1)
Includes $339.2 million and $335.7 million in PPP loans at September 30, 2020 and June 30, 2020

Macatawa Bank Corporation 3Q Results / page 6 of 7

Total deposits were $2.17 billion at September 30, 2020, up $52.3 million, or 2.5 percent, from $2.12 billion at June 30, 2020 and were up $350.4 million, or 19.3 percent, from $1.82 billion at September 30, 2019.  The Company’s municipal customers typically experience seasonal growth in their balances during the third quarter. Demand deposits were up $276.0 million in the third quarter 2020 compared to the third quarter 2019.  Money market deposits and savings deposits were up $43.9 million from the second quarter 2020 and were up $108.2 million from the third quarter 2019.  Certificates of deposit were down $18.3 million at September 30, 2020 compared to June 30, 2020 and were down $33.8 million compared to September 30, 2019 as customers reacted to changes in market interest rates.  As deposit rates have dropped, the Company has experienced some shifting between deposit types and, overall, deposit customers are holding higher levels of liquid deposit balances in the low interest rate environment and due to uncertainty related to the COVID-19 pandemic.  The Company continues to be successful at attracting and retaining core deposit customers.  Customer deposit accounts remain insured to the highest levels available under FDIC deposit insurance.

The Company's total risk-based regulatory capital ratio at September 30, 2020 was higher than the ratios at both June 30, 2020 and September 30, 2019.  Macatawa Bank’s risk-based regulatory capital ratios continue to be at levels comfortably above those required to be categorized as “well capitalized” under applicable regulatory capital guidelines.  As such, the Bank was categorized as "well capitalized" at September 30, 2020.

About Macatawa Bank
Headquartered in Holland, Mich., Macatawa Bank offers a full range of banking, retail and commercial lending, wealth management and ecommerce services to individuals, businesses and governmental entities from a network of 26 full-service branches located throughout communities in Kent, Ottawa and northern Allegan counties.  The bank is recognized for its local management team and decision making, along with providing customers excellent service, a rewarding experience and superior financial products. Macatawa Bank has been recognized for ten years as “West Michigan’s 101 Best and Brightest Companies to Work For”. For more information, visit www.macatawabank.com.

Macatawa Bank Corporation 3Q Results / page 7 of 7

CAUTIONARY STATEMENT:  This press release contains forward-looking statements that are based on management's current beliefs, expectations, assumptions, estimates, plans and intentions.  Forward-looking statements are identifiable by words or phrases such as “anticipates,” "believe," "expect," "may," "should," "will," ”intend,” "continue," "improving," "additional," "focus," "forward," "future," "efforts," "strategy," "momentum," "positioned," and other similar words or phrases.  Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements.  These statements include, among others, statements related to risks and uncertainties related to, and the impact of, the global coronavirus (COVID-19) pandemic on the business, financial condition and results of operations of our company and our customers, trends in our key operating metrics and financial performance, future levels of earnings and profitability, future levels of earning assets, future asset quality, future growth, and future net interest margin.  All statements with references to future time periods are forward-looking.  Management's determination of the provision and allowance for loan losses, the appropriate carrying value of intangible assets (including deferred tax assets) and other real estate owned and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) involves judgments that are inherently forward-looking. Our ability to sell other real estate owned at its carrying value or at all, reduce non-performing asset expenses, utilize our deferred tax asset, successfully implement new programs and initiatives, increase efficiencies, maintain our current level of deposits and other sources of funding, maintain liquidity, respond to declines in collateral values and credit quality, improve profitability, and produce consistent core earnings is not entirely within our control and is not assured.  The future effect of changes in the real estate, financial and credit markets and the national and regional economy on the banking industry, generally, and Macatawa Bank Corporation, specifically, are also inherently uncertain.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence.  Therefore, actual results and outcomes may materially differ from what may be expressed in or implied by such forward-looking statements. Macatawa Bank Corporation does not undertake to update forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.

Risk factors include, but are not limited to, the risk factors described in “Part II, Item 1A – Risk Factors” in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020 and in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019.  These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

MACATAWA BANK CORPORATION
CONSOLIDATED FINANCIAL SUMMARY
(Unaudited)
(Dollars in thousands except per share information)


  
Quarterly
    
Nine Months Ended
  
EARNINGS SUMMARY
   
3rd Qtr
2020
      
2nd Qtr
2020
      
3rd Qtr
2019
      
September 30
  
2020
    
2019
  
Total interest income
  
$
15,822
    
$
16,507
    
$
19,079
    
$
49,823
    
$
57,508
  
Total interest expense
    
1,148
      
1,460
      
3,243
      
4,799
      
9,696
  
Net interest income
    
14,674
      
15,047
      
15,836
      
45,024
      
47,812
  
Provision for loan losses
    
500
      
1,000
      
-
      
2,200
      
(450
)
Net interest income after provision for loan losses
    
14,174
      
14,047
      
15,836
      
42,824
      
48,262
  
                                         
NON-INTEREST INCOME
                                        
Deposit service charges
    
987
      
860
      
1,139
      
2,957
      
3,267
  
Net gains on mortgage loans
    
1,546
      
1,849
      
824
      
4,045
      
1,650
  
Trust fees
    
921
      
945
      
920
      
2,801
      
2,813
  
Other
    
2,638
      
2,200
      
2,330
      
7,101
      
6,909
  
Total non-interest income
    
6,092
      
5,854
      
5,213
      
16,904
      
14,639
  
                                         
NON-INTEREST EXPENSE
                                        
Salaries and benefits
    
6,480
      
5,766
      
6,272
      
18,937
      
18,895
  
Occupancy
    
1,026
      
949
      
966
      
2,984
      
3,055
  
Furniture and equipment
    
967
      
882
      
887
      
2,704
      
2,597
  
FDIC assessment
    
131
      
76
      
-
      
207
      
239
  
Problem asset costs, including losses and (gains)
    
25
      
17
      
46
      
103
      
114
  
Other
    
2,904
      
2,814
      
2,838
      
8,824
      
8,682
  
Total non-interest expense
    
11,533
      
10,504
      
11,009
      
33,759
      
33,582
  
Income before income tax
    
8,733
      
9,397
      
10,040
      
25,969
      
29,319
  
Income tax expense
    
1,613
      
1,759
      
1,882
      
4,800
      
5,512
  
Net income
  
$
7,120
    
$
7,638
    
$
8,158
    
$
21,169
    
$
23,807
  
                                         
Basic earnings per common share
  
$
0.21
    
$
0.22
    
$
0.24
    
$
0.62
    
$
0.70
  
Diluted earnings per common share
  
$
0.21
    
$
0.22
    
$
0.24
    
$
0.62
    
$
0.70
  
Return on average assets
    
1.12
%
    
1.31
%
    
1.59
%
    
1.22
%
    
1.59
%
Return on average equity
    
12.29
%
    
13.50
%
    
15.69
%
    
12.48
%
    
15.80
%
Net interest margin (fully taxable equivalent)
    
2.43
%
    
2.74
%
    
3.29
%
    
2.77
%
    
3.43
%
Efficiency ratio
    
55.54
%
    
50.26
%
    
52.30
%
    
54.51
%
    
53.77
%

BALANCE SHEET DATA
   
September 30
2020
      
June 30
2020
      
September 30
2019
   
Assets
Cash and due from banks
  
$
28,294
    
$
33,079
    
$
50,870
  
Federal funds sold and other short-term investments
    
504,706
      
426,926
      
319,566
  
Debt securities available for sale
    
229,928
      
229,489
      
209,895
  
Debt securities held to maturity
    
91,394
      
89,195
      
81,995
  
Federal Home Loan Bank Stock
    
11,558
      
11,558
      
11,558
  
Loans held for sale
    
3,508
      
1,677
      
1,317
  
Total loans
    
1,542,335
      
1,562,688
      
1,377,227
  
Less allowance for loan loss
    
16,558
      
15,855
      
17,145
  
Net loans
    
1,525,777
      
1,546,833
      
1,360,082
  
Premises and equipment, net
    
43,733
      
43,052
      
43,956
  
Bank-owned life insurance
    
42,368
      
42,654
      
41,960
  
Other real estate owned
    
2,624
      
2,624
      
3,109
  
Other assets
    
24,828
      
24,061
      
20,190
  
                         
Total Assets
  
$
2,508,718
    
$
2,451,148
    
$
2,144,498
  
                         
Liabilities and Shareholders' Equity
                        
Noninterest-bearing deposits
  
$
738,471
    
$
748,624
    
$
501,731
  
Interest-bearing deposits
    
1,432,108
      
1,369,667
      
1,318,409
  
Total deposits
    
2,170,579
      
2,118,291
      
1,820,140
  
Other borrowed funds
    
70,000
      
70,000
      
60,000
  
Long-term debt
    
20,619
      
20,619
      
41,238
  
Other liabilities
    
13,655
      
12,900
      
11,335
  
Total Liabilities
    
2,274,853
      
2,221,810
      
1,932,713
  
                         
Shareholders' equity
    
233,865
      
229,338
      
211,785
  
                         
Total Liabilities and Shareholders' Equity
  
$
2,508,718
    
$
2,451,148
    
$
2,144,498
  

MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)

   
Quarterly
    
Year to Date
  
                                           
   
3rd Qtr
2020
    
2nd Qtr
2020
    
1st Qtr
2020
    
4th Qtr
2019
    
3rd Qtr
2019
    
2020
    
2019
  
EARNINGS SUMMARY
                                          
Net interest income
  
$
14,674
    
$
15,047
    
$
15,303
    
$
15,675
    
$
15,836
    
$
45,024
    
$
47,812
  
Provision for loan losses
    
500
      
1,000
      
700
      
-
      
-
      
2,200
      
(450
)
Total non-interest income
    
6,092
      
5,854
      
4,959
      
5,089
      
5,213
      
16,904
      
14,639
  
Total non-interest expense
    
11,533
      
10,504
      
11,722
      
10,643
      
11,009
      
33,759
      
33,582
  
Federal income tax expense
    
1,613
      
1,759
      
1,429
      
1,949
      
1,882
      
4,800
      
5,512
  
Net income
  
$
7,120
    
$
7,638
    
$
6,411
    
$
8,172
    
$
8,158
    
$
21,169
    
$
23,807
  
                                                         
Basic earnings per common share
  
$
0.21
    
$
0.22
    
$
0.19
    
$
0.24
    
$
0.24
    
$
0.62
    
$
0.70
  
Diluted earnings per common share
  
$
0.21
    
$
0.22
    
$
0.19
    
$
0.24
    
$
0.24
    
$
0.62
    
$
0.70
  
                                                         
MARKET DATA
                                                        
Book value per common share
  
$
6.86
    
$
6.72
    
$
6.56
    
$
6.38
    
$
6.22
    
$
6.86
    
$
6.22
  
Tangible book value per common share
  
$
6.86
    
$
6.72
    
$
6.56
    
$
6.38
    
$
6.22
    
$
6.86
    
$
6.22
  
Market value per common share
  
$
6.53
    
$
7.82
    
$
7.12
    
$
11.13
    
$
10.39
    
$
6.53
    
$
10.39
  
Average basic common shares
    
34,109,901
      
34,108,982
      
34,106,719
      
34,080,275
      
34,060,796
      
34,108,676
      
34,048,087
  
Average diluted common shares
    
34,109,901
      
34,108,982
      
34,106,719
      
34,080,275
      
34,060,796
      
34,108,676
      
34,048,087
  
Period end common shares
    
34,101,320
      
34,114,901
      
34,107,995
      
34,103,542
      
34,061,080
      
34,101,320
      
34,061,080
  
                                                         
PERFORMANCE RATIOS
                                                        
Return on average assets
    
1.12
%
    
1.31
%
    
1.27
%
    
1.59
%
    
1.59
%
    
1.22
%
    
1.59
%
Return on average equity
    
12.29
%
    
13.50
%
    
11.63
%
    
15.27
%
    
15.69
%
    
12.48
%
    
15.80
%
Net interest margin (fully taxable equivalent)
    
2.43
%
    
2.74
%
    
3.25
%
    
3.24
%
    
3.29
%
    
2.77
%
    
3.43
%
Efficiency ratio
    
55.54
%
    
50.26
%
    
57.85
%
    
51.26
%
    
52.30
%
    
54.51
%
    
53.77
%
Full-time equivalent employees (period end)
    
327
      
335
      
331
      
325
      
327
      
327
      
327
  
                                                         
ASSET QUALITY
                                                        
Gross charge-offs
  
$
24
    
$
4,183
    
$
39
    
$
33
    
$
48
    
$
4,246
    
$
246
  
Net charge-offs/(recoveries)
  
$
(203
)
  
$
4,034
    
$
(989
)
  
$
(55
)
  
$
(259
)
  
$
2,842
    
$
(719
)
Net charge-offs to average loans (annualized)
    
-0.05
%
    
1.03
%
    
-0.29
%
    
-0.02
%
    
-0.08
%
    
0.25
%
    
-0.07
%
Nonperforming loans
  
$
195
    
$
2,957
    
$
7,230
    
$
203
    
$
211
    
$
195
    
$
211
  
Other real estate and repossessed assets
  
$
2,624
    
$
2,624
    
$
2,626
    
$
2,748
    
$
3,109
    
$
2,624
    
$
3,109
  
Nonperforming loans to total loans
    
0.01
%
    
0.19
%
    
0.52
%
    
0.01
%
    
0.02
%
    
0.01
%
    
0.02
%
Nonperforming assets to total assets
    
0.11
%
    
0.23
%
    
0.49
%
    
0.14
%
    
0.15
%
    
0.11
%
    
0.15
%
Allowance for loan losses
  
$
16,558
    
$
15,855
    
$
18,889
    
$
17,200
    
$
17,145
    
$
16,558
    
$
17,145
  
Allowance for loan losses to total loans
    
1.07
%
    
1.01
%
    
1.35
%
    
1.24
%
    
1.24
%
    
1.07
%
    
1.24
%
Allowance for loan losses to total loans (excluding PPP loans)
    
1.38
%
    
1.29
%
    
1.35
%
    
1.24
%
    
1.24
%
    
1.38
%
    
1.24
%
Allowance for loan losses to nonperforming loans
    
8491.28
%
    
536.19
%
    
261.26
%
    
8472.91
%
    
8125.59
%
    
8491.28
%
    
8125.59
%
                                                         
CAPITAL
                                                        
Average equity to average assets
    
9.07
%
    
9.68
%
    
10.93
%
    
10.42
%
    
10.15
%
    
9.82
%
    
10.08
%
Common equity tier 1 to risk weighted assets (Consolidated)
    
15.30
%
    
14.92
%
    
13.43
%
    
13.46
%
    
13.23
%
    
15.30
%
    
13.23
%
Tier 1 capital to average assets (Consolidated)
    
9.78
%
    
10.49
%
    
11.90
%
    
11.49
%
    
12.22
%
    
9.78
%
    
12.22
%
Total capital to risk-weighted assets (Consolidated)
    
17.74
%
    
17.30
%
    
15.81
%
    
15.78
%
    
16.83
%
    
17.74
%
    
16.83
%
Common equity tier 1 to risk weighted assets (Bank)
    
16.18
%
    
15.81
%
    
14.23
%
    
14.26
%
    
15.31
%
    
16.18
%
    
15.31
%
Tier 1 capital to average assets (Bank)
    
9.52
%
    
10.21
%
    
11.56
%
    
11.15
%
    
11.88
%
    
9.52
%
    
11.88
%
Total capital to risk-weighted assets (Bank)
    
17.28
%
    
16.87
%
    
15.39
%
    
15.33
%
    
16.39
%
    
17.28
%
    
16.39
%
Common equity to assets
    
9.32
%
    
9.36
%
    
11.01
%
    
10.52
%
    
9.88
%
    
9.32
%
    
9.88
%
Tangible common equity to assets
    
9.32
%
    
9.36
%
    
11.01
%
    
10.52
%
    
9.88
%
    
9.32
%
    
9.88
%
                                                         
END OF PERIOD BALANCES
                                                        
Total portfolio loans
  
$
1,542,335
    
$
1,562,688
    
$
1,395,341
    
$
1,385,627
    
$
1,377,227
    
$
1,542,335
    
$
1,377,227
  
Earning assets
    
2,376,943
      
2,316,213
      
1,912,400
      
1,943,356
      
1,999,817
      
2,376,943
      
1,999,817
  
Total assets
    
2,508,718
      
2,451,148
      
2,031,090
      
2,068,770
      
2,144,498
      
2,508,718
      
2,144,498
  
Deposits
    
2,170,579
      
2,118,291
      
1,705,380
      
1,753,294
      
1,820,140
      
2,170,579
      
1,820,140
  
Total shareholders' equity
    
233,865
      
229,338
      
223,580
      
217,469
      
211,785
      
233,865
      
211,785
  
                                                         
AVERAGE BALANCES
                                                        
Total portfolio loans
  
$
1,542,838
    
$
1,571,544
    
$
1,384,465
    
$
1,377,051
    
$
1,348,417
    
$
1,499,774
    
$
1,371,507
  
Earning assets
    
2,416,072
      
2,216,193
      
1,897,236
      
1,931,333
      
1,921,346
      
2,177,374
      
1,872,195
  
Total assets
    
2,554,198
      
2,338,888
      
2,017,823
      
2,055,398
      
2,049,006
      
2,304,551
      
1,992,431
  
Deposits
    
2,215,509
      
2,007,258
      
1,701,994
      
1,727,946
      
1,728,657
      
1,975,799
      
1,681,137
  
Total shareholders' equity
    
231,702
      
226,288
      
220,538
      
214,112
      
208,031
      
226,196
      
200,847
  



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